Social media, business analytics technologies hot at ACORD forum

Bill Kenealy

ORLANDO, Fla.—The potential of new technologies to disrupt entire business models in the insurance industry was a pervasive theme at last week's ACORD LOMA Insurance Systems Forum.

Alongside mobile and social media technologies, the impact of business analytics or “big data” technologies on the industry was a primary topic of discussion at the gathering in Orlando, Fla.

In a presentation, Karen Pauli, research director for New York-based consultant Tower Group Inc., said the insurance industry largely has failed to capitalize on the potential of analytics to improve a vital business process. Insight derived from predictive models can improve the claims process in subrogation management, litigation management and fraud detection, she said.

Ms. Pauli added that while the many insurers have made progress in replacing legacy claims management systems with modern systems capable of supporting analytics, most have failed to take the next step and augment them with analytics tools.

“The change in core claims systems over the past two or three years has been amazing, but it's an incredible waste of a modern system unless you add business intelligence, business process management or predictive analytics,” she said. “Carriers not availing themselves of the new analytic tools out there is a big problem.”

Moreover, insurers need to assemble the human resources necessary to devise the mathematical models and analyze the data. “Your claims business managers must become masters of analytics,” she said.

Similarly, Ian Ayres, author of “Super Crunchers: Why Thinking-by-Numbers is the New Way to Be Smart,” said during a keynote address that insurers need to abandon the idea that analytics is the exclusive province of a small cadre of workers such as actuaries.

“My sense is that predictive analytics has been too segregated with actuarial departments,” he said. “The best insurance companies will let analytics leak out of actuarial.”

“Telematics devices enable insurers to monitor driver patterns and behaviors second by second,” he said. “This is real-time insurance risk management and pricing and portends the future of insurance,” he said during a panel discussion.

There was less agreement among the panelists on the extent to which social and Web technologies would alter another longstanding practice in insurance—the use of intermediaries as conduits between buyers and sellers of insurance.

Citing travel agents and brick-and-mortar bookstores, Matthew Josefowicz, Managing director of New York-based Novarica, a division of New York-based Novantas L.L.C., argued that the intermediaries were threatened by demographics, the Web and smartphones.

“The intermediary model that the industry has relied upon for decades was formed by limitations in information that no longer exist,” he said. “Most of the people who are going to go to an insurance agent in the next decade have already been to insurance agents.”

To the contrary, Kimberly Harris-Ferrante, vp and distinguished analyst at Stamford, Conn.-based based Gartner Inc., said she sees intermediaries' role morphing into more of a service role and said buyer unwillingness to purchase policies directly looks to keep intermediaries in the picture for the foreseeable future.

Mr. Fitzgerald said he saw the future of intermediaries varying by lines of business, with intermediaries shifting to provide more of a risk management function in areas such as small commercial lines.